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Pentair Reports First Quarter Net Income Per Share from Continuing Operations of $0.18; Adjusted EPS of $0.20
04.21.2009

  • Reports first quarter sales of $634 million, down 24 percent year-over-year. Effectively executing against restructuring actions as all events on or ahead of schedule.
  • Updates full year EPS guidance to exceed $1.40 on full year sales outlook of down approximately 20 percent.
  • Full year free cash flow expected to be at least $225 million as company is $45 million ahead of 2008 levels exiting first quarter.

All financial information and period-to-period references are on a continuing operations basis unless otherwise noted. Reconciliations to discontinued operations as well as GAAP and Non-GAAP reconciliations are in the attached financial tables.

MINNEAPOLIS--(BUSINESS WIRE)--Apr. 21, 2009-- Pentair, Inc. (NYSE:PNR) today announced first quarter 2009 net earnings per diluted share from continuing operations (EPS) of $0.18. This represents a decrease of 66 percent as compared to the $0.53 of EPS in the first quarter last year. Current period results include a negative $0.02 per share impact from restructuring charges taken late in the quarter related to additional headcount reductions. Adjusting for these items, first quarter 2009 EPS was $0.20, which met the low end of the company’s guidance range.

Total company sales decreased 24 percent to $634 million, compared with $830 million in the first quarter of 2008. The company delivered first quarter operating income of $37 million. On an adjusted basis, the company delivered operating income of $40 million versus $97 million in the year-ago quarter. The company’s adjusted operating income excludes the impact of additional severance charges associated with the first quarter elimination of 340 positions not included in prior restructuring. Overall, adjusted operating margins for the first quarter contracted 540 basis points to 6.3 percent. The positive impact from productivity and price could not offset the significant negative impact related to lower volumes.

Total company free cash flow was a usage of $33 million for the quarter versus a usage of $78 million for the year-earlier quarter. The company said it remains on track to achieve free cash flow greater than $225 million for 2009, driven by improvements in working capital.

“Most of our major markets were dismal throughout the first quarter as many of our customers retrenched in reaction to the global recession. Fortunately, our execution against our aggressive cost reduction plans is yielding solid benefits. We delivered first quarter adjusted EPS of 20 cents, which matched the low-end of our guidance range, in spite of sales declining 24 percent which was ten percentage points worse than our sales outlook,” said Randall J. Hogan, Pentair chairman and chief executive officer.

First Quarter Business Highlights

The Water Group delivered $424 million in sales, a 22 percent decline year-over-year. Sales were down 21 percent excluding the formation of the Pentair Residential Filtration (PRF) business with General Electric’s (GE) Water and Process Technologies unit, which added three points of growth, and foreign exchange, which reduced sales by four points.

  • Global Flow Technologies sales were down 18 percent versus the year-ago quarter, as sales increases of pump equipment for global commercial markets did not outpace declines in residential and agricultural markets.
  • Global Filtration sales were down 8 percent, or down 19 percent excluding the increased sales associated with the formation of PRF. Sales increases in desalination markets did not offset declines in residential, industrial and foodservice markets.
  • Global Pool and Spa sales were down 45 percent as the prolonged decline in North American residential pool and spa markets continued to impact sales.
  • International Water sales declined over 20 percent as growth in Asia-Pacific did not outpace organic sales declines of 23 percent in Europe, Middle East and Africa.

The Water Group’s first quarter reported operating income totaled $27 million, down 59 percent as compared to $65 million in the same period last year. In the quarter, the Water Group had $1 million in pre-tax restructuring charges associated with severance from recently announced headcount reductions. Excluding these items, adjusted operating income was $28 million, down 56 percent versus $65 million a year ago. Adjusted operating margins of 6.7 percent were down 520 basis points as benefits from productivity and price did not offset the negative impact from volume declines, inflation, pay-as-you-go restructuring costs, and integration expenses associated with the formation of PRF with GE.

Technical Products delivered first quarter 2009 sales of $210 million, a decrease of 26 percent versus the year-earlier period. Sales were down 24 percent excluding the impact of foreign exchange.

  • Global Electrical sales were down 25 percent as global industrial markets dramatically slowed their capital projects and distributors aggressively reduced inventory levels.
  • Global Electronic sales were down 27 percent. In Asia, electronic sales were down 3 percent while sales in Europe were down 15 percent in local currencies, and North American sales were down 32 percent.

Technical Products’ first quarter reported operating income totaled $20 million, down 55 percent compared to $45 million in the same quarter last year. Adjusting for a restructuring charge, operating income was $21 million. Adjusted operating margins were 10.1 percent, down 580 basis points versus the first quarter 2008. In the quarter, the benefits from productivity and price did not offset the negative impact from volume declines, inflation and foreign exchange.

“Clearly, we are wrestling with a worse than expected global economic downturn that has had a dramatic impact on us and most of our markets. First quarter sales were much lower than expected and it is prudent we plan for a challenging sales environment for the balance of 2009,” Hogan said. “However, the tremendous progress we are making to reduce fixed and variable cost is encouraging. We believe that this progress, coupled with our focus to generate solid free cash flow, positions the company for significant upside once markets stabilize and then improve.”

Outlook

The company introduces its second quarter reported 2009 EPS guidance range of $0.32 to $0.42. Adjusting for charges associated with the recently announced early redemption of its bonds, second quarter EPS is expected to be $0.35 to $0.45, down approximately 43 percent year-over-year when using the midpoint of the guidance range. Second quarter sales are expected to be down over 20 percent.

The company updates its full year 2009 EPS guidance to equal or to exceed $1.40, which would be down 46 percent when compared to reported full year 2008 EPS or down 36 percent when 2008 EPS is adjusted for non-recurring items (see attached 2008 reconciliation table). The company expects full year 2009 EPS on both a reported and adjusted basis will be comparable as restructuring and other charges in 2009 are expected to be similar in size to anticipated gains from other nonrecurring items.

“Many markets are faring much worse than the sober outlook planned upon and our updated guidance reflects this,” said Hogan. “We now expect the next few quarters will demonstrate only modest seasonal benefits and that sales will be down over 20 percent for 2009. Our full year EPS guidance of at least $1.40 provides investors with a foundation which we believe will be achieved or exceeded through continued solid execution despite these unprecedented times.”

“Further, we believe our first quarter earnings – and the sales decline that drove it – represents a low-point for the company. While it is clearly too early to forecast 2010, the benefits we expect to receive from our productivity and cost actions and cash flow generation position us well to grow earnings when markets stabilize,” Hogan added.

Earnings Conference Call

Pentair Chairman and CEO Randall J. Hogan and Chief Financial Officer John L. Stauch will discuss the company’s performance and second quarter and full year 2009 guidance on a two-way conference call with investors and a live audio webcast at 12:00 p.m. Eastern today. Reconciliation of non-GAAP financial measures are set forth in the attachments to this first quarter 2009 earnings release and in the first quarter 2009 earning release conference call presentation, both of which can be found at Pentair’s web site (www.pentair.com). Related financial charts and certain other information to be discussed on the conference call will be available on the company’s website shortly before the conference call. The web cast and presentation will be archived at the same site following the conclusion of the conference call.

Caution Concerning Forward-Looking Statements

Any statements made about the company’s anticipated financial results are forward-looking statements subject to risks and uncertainties such as the breadth and severity of the global economic downturn; the strength of housing and related markets; the ability to implement our restructuring and other cost reduction plans successfully and the risk that expected benefits may not be fully realized or may take longer to realize than expected; foreign currency effects; retail and industrial demand; product introductions; and pricing and other competitive pressures, as well as other risk factors set forth in our SEC filings. Forward-looking statements included herein are made as of the date hereof, and the company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances. Actual results could differ materially from anticipated results.

About Pentair, Inc.

Pentair (www.pentair.com) is a diversified operating company headquartered in Minnesota. Its Water Group is a global leader in providing innovative products and systems used worldwide in the movement, treatment, storage and enjoyment of water. Pentair’s Technical Products Group is a leader in the global enclosures and thermal management markets, designing and manufacturing thermal management products and standard, modified, and custom enclosures that house and protect sensitive electronics and electrical components. With 2008 revenues of $3.35 billion, Pentair employs approximately 13,400 people worldwide.

Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
   
Three months ended
In thousands, except per-share data   March 28
2009
  March 29
2008
Net sales $ 633,840 $ 830,146
Cost of goods sold     464,608       579,452  
Gross profit 169,232 250,694
% of net sales 26.7 % 30.2 %
Selling, general and administrative 117,275 138,103
% of net sales 18.5 % 16.6 %
Research and development 14,743 15,264
% of net sales     2.3 %     1.9 %
Operating income 37,214 97,327
% of net sales 5.9 % 11.7 %
 
Other (income) expense:
Equity losses of unconsolidated subsidiary 277 917
Net interest expense 11,784 16,089
% of net sales     1.9 %     1.9 %

Income from continuing operations before income taxes and noncontrolling interest

25,153 80,321
% of net sales 4.0 % 9.7 %
Provision for income taxes 7,432 27,858
Effective tax rate     29.5 %     34.7 %
Income from continuing operations 17,721 52,463
Loss from discontinued operations, net of tax (1,036 )
Gain (loss) on disposal of discontinued operations, net of tax     10       (7,137 )
Net income before noncontrolling interest 17,731 44,290
Noncontrolling interest     466        
Net income attributable to Pentair, Inc.   $ 17,265     $ 44,290  
 
Net income from continuing operations attributable to Pentair, Inc.   $ 17,255     $ 52,463  
 
Earnings (loss) per common share attributable to Pentair, Inc.
Basic
Continuing operations $ 0.18 $ 0.53
Discontinued operations     -       (0.08 )
Basic earnings per common share   $ 0.18     $ 0.45  
 
Diluted
Continuing operations $ 0.18 $ 0.53
Discontinued operations     -       (0.08 )
Diluted earnings per common share   $ 0.18     $ 0.45  
 
Weighted average common shares outstanding
Basic 97,375 98,280
Diluted 97,966 99,558
 
Cash dividends declared per common share $ 0.18 $ 0.17
 
Pentair, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
     
In thousands   March 28
2009
  December 31
2008
  March 29
2008
Assets
Current assets
Cash and cash equivalents $ 34,708 $ 39,344 $ 62,284
Accounts and notes receivable, net 505,196 461,081 609,960
Inventories 393,201 417,287 402,618
Deferred tax assets 51,268 51,354 54,275
Prepaid expenses and other current assets 47,848 63,113 43,125
Current assets of discontinued operations            

20,306

Total current assets 1,032,221 1,032,179 1,192,568
 
Property, plant and equipment, net 337,898 343,881 364,068
 
Other assets
Goodwill 2,092,825 2,101,851 2,024,680
Intangibles, net 504,921 515,508 493,564
Other 56,964 59,794 81,447
Non-current assets of discontinued operations             14,061
Total other assets     2,654,710     2,677,153     2,613,752
Total assets   $ 4,024,829   $ 4,053,213   $ 4,170,388
 
Liabilities and Shareholders' Equity
Current liabilities
Short-term borrowings $ 7,404 $

$

7,005

Current maturities of long-term debt 630 624 5,209
Accounts payable 196,767 217,898 233,993
Employee compensation and benefits 75,664 90,210 99,364
Current pension and post-retirement benefits 8,890 8,890 8,557
Accrued product claims and warranties 38,639 41,559 45,949
Income taxes 4,312 5,451 34,728
Accrued rebates and sales incentives 20,754 28,897 28,790
Other current liabilities 98,919 104,975 109,278
Current liabilities of discontinued operations             1,799
Total current liabilities 451,979 498,504 574,672
 
Other liabilities
Long-term debt 991,807 953,468 1,119,105
Pension and other retirement compensation 270,443 270,139 169,790
Post-retirement medical and other benefits 34,299 34,723 36,179
Long-term income taxes payable 28,076 28,139 24,268
Deferred tax liabilities 145,565 146,559 165,842
Other non-current liabilities 97,260 101,612 105,041
Non-current liabilities of discontinued operations    

   

    1,271
Total liabilities 2,019,429 2,033,144 2,196,168
 
Shareholders' equity     2,005,400     2,020,069     1,974,220
Total liabilities and shareholders' equity   $ 4,024,829   $ 4,053,213   $ 4,170,388
 
Days sales in accounts receivable (13 month moving average) 60 57 55
Days inventory on hand (13 month moving average) 85 79 74
Days in accounts payable (13 month moving average) 61 59 56
Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
   
Three months ended

 

 

In thousands  

March 28
2009

 

March 29
2008

Operating activities
Net income attributable to Pentair, Inc. $ 17,265 $ 44,290
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Loss from discontinued operations 1,036
(Gain) loss on disposal of discontinued operations (10 ) 7,137
Equity losses of unconsolidated subsidiary 277 917
Noncontrolling interest 466
Depreciation 15,170 14,811
Amortization 7,233 6,535
Deferred income taxes 7 (5,836 )
Stock compensation 4,720 6,465
Excess tax benefits from stock-based compensation (64 ) (378 )
Other 19 (552 )

Changes in assets and liabilities, net of effects of business acquisitions and dispositions

Accounts and notes receivable (47,021 ) (137,651 )
Inventories 21,069 (16,196 )
Prepaid expenses and other current assets 15,008 (5,644 )
Accounts payable (18,052 ) 5,893
Employee compensation and benefits (15,470 ) (16,863 )
Accrued product claims and warranties (2,797 ) (3,400 )
Income taxes (922 ) 17,923
Other current liabilities (13,337 ) 9,504
Pension and post-retirement benefits 1,801 1,885
Other assets and liabilities     (2,415 )     2,589  
Net cash provided by (used for) continuing operations (17,053 ) (67,535 )
Net cash provided by (used for) operating activities of discontinued operations           (2,997 )
Net cash provided by (used for) operating activities (17,053 ) (70,532 )
 
Investing activities
Capital expenditures (15,979 ) (14,042 )
Proceeds from sale of property and equipment 280 3,845
Acquisitions, net of cash acquired or received 165
Divestitures 29,959
Other     (40 )      
Net cash provided by (used for) investing activities (15,739 ) 19,927
 
Financing activities
Net short-term borrowings (repayments) 7,494 (7,272 )
Proceeds from long-term debt 135,000 159,405
Repayment of long-term debt (96,679 ) (82,766 )
Excess tax benefits from stock-based compensation 64 378
Proceeds from exercise of stock options 680 851
Repurchases of common stock (12,500 )
Dividends paid     (17,710 )     (16,908 )
Net cash provided by (used for) financing activities 28,849 41,188
 
Effect of exchange rate changes on cash and cash equivalents     (693 )     906  
Change in cash and cash equivalents (4,636 ) (8,511 )
Cash and cash equivalents, beginning of period     39,344       70,795  
Cash and cash equivalents, end of period   $ 34,708     $ 62,284  
 
Free cash flow        
Net cash provided by (used for) continuing operations $ (17,053 ) $ (67,535 )
Capital expenditures (15,979 ) (14,042 )
Proceeds from sale of property and equipment     280       3,845  
Free cash flow   $ (32,752 )   $ (77,732 )
Pentair, Inc. and Subsidiaries
Supplemental Financial Information by Reportable Business Segment (Unaudited)
   
 
In thousands   First Qtr
2009
  First Qtr
2008
 
Net sales to external customers
Water $ 423,932 $ 544,686
Technical Products     209,908       285,460  
Consolidated   $ 633,840     $ 830,146  
 
Intersegment sales
Water $ 289 $ 372
Technical Products 233 1,138
Other     (522 )     (1,510 )
Consolidated   $     $  
 
Operating income (loss)
Water $ 26,976 $ 65,035
Technical Products 20,462 45,337
Other     (10,224 )     (13,045 )
Consolidated   $ 37,214     $ 97,327  
 
Operating income as a percent of net sales
Water 6.4 % 11.9 %
Technical Products 9.7 % 15.9 %
Consolidated 5.9 % 11.7 %
 
Pentair, Inc. and Subsidiaries

Reconciliation of the GAAP "As Reported" year ending December 31, 2009 to the "Adjusted" non-GAAP excluding the effect of 2009 adjustments (Unaudited)

     
 

 

 

 

In thousands, except per-share data  

First Quarter
2009

 

Second Quarter
2009

 

Year
2009

Net sales   $ 633,840     $690,000-$720,000     approx $2,700M
 
Operating income - as reported 37,214 65,000 - 75,000 approx 252,000
% of net sales 5.9 % approx 10% approx 9.3%
Adjustments:
Restructuring & other non-recurring     2,824           approx 3,000
Operating income - as adjusted 40,038 65,000 - 75,000 approx 255,000
% of net sales 6.3 % approx 10% approx 9.4%
 

Net income from continuing operations attributable to Pentair, Inc. - as reported

17,255 31,400 - 42,800 approx 137,000
Adjustments - tax affected
Restructuring & other non-recurring     1,864       3,000        

Net income from continuing operations attributable to Pentair, Inc. - as adjusted

    19,119       34,400 - 45,800     approx 137,000
 
Continuing earnings per common share attributable to Pentair, Inc. - diluted
Diluted earnings per common share - as reported $ 0.18 $0.32 - $0.42 $1.40 or above
Adjustments     0.02       0.03        
Diluted earnings per common share - as adjusted   $ 0.20     $0.35 - $0.45     $1.40 or above
 
 
Weighted average common shares outstanding - Diluted 97,966 approx 98,000 approx 98,000
 
 
 
Pentair, Inc. and Subsidiaries

Reconciliation of the GAAP "As Reported" year ending December 31, 2008 to the "Adjusted" non-GAAP excluding the effect of 2008 adjustments (Unaudited)

 
 

 

 

 

In thousands, except per-share data  

First Quarter
2008

 

Second Quarter
2008

 

Year
2008

Net sales   $ 830,146     $ 898,378     $ 3,351,976  
 
Operating income - as reported 97,327 96,547 324,685
% of net sales 11.7 % 10.7 % 9.7 %
Adjustments:
Restructuring and asset impairment 2,586 46,170
Horizon settlement           20,435       20,435  
Operating income - as adjusted 97,327 119,568 391,290
% of net sales 11.7 % 13.3 % 11.7 %
 

Net income from continuing operations attributable to Pentair, Inc. - as reported

52,463 139,837 256,363
Adjustments - tax affected
Restructuring and asset impairment 1,707 30,473
Horizon settlement 13,487 13,487
Gain on PRF transaction (85,832 ) (85,832 )
Bond tender                 3,043  

Net income from continuing operations attributable to Pentair, Inc. - as adjusted

    52,463       69,199       217,534  
 
Continuing earnings per common share attributable to Pentair, Inc. - diluted
Diluted earnings per common share - as reported $ 0.53 $ 1.41 $ 2.59
Adjustments           (0.71 )     (0.39 )
Diluted earnings per common share - as adjusted   $ 0.53     $ 0.70     $ 2.20  
 
 
Weighted average common shares outstanding - Diluted 99,558 99,509 99,068
 
Pentair, Inc. and Subsidiaries

Reconciliation of the GAAP "As Reported" year ending December 31, 2009 to the "Adjusted" non-GAAP excluding the effect of 2009 adjustments (Unaudited)

     

 

 

 

In thousands  

First Quarter
2009

 

Second Quarter
2009

 

Year
2009

Water
Net sales   $ 423,932     $480,000-$500,000     approx $1,825M
 
Operating income - as reported 26,976 50,000-55,000 178,500-183,500
% of net sales 6.4 %

10.0% - 11.5%

%

approx 10.0%
Adjustments - restructuring     1,464           approx 1,500
Operating income - as adjusted 28,440 50,000-55,000 180,000-185,000
% of net sales 6.7 %

10.0% - 11.5

%

approx 10.0%
 
 
Technical Products
Net sales   $ 209,908     $210,000-$220,000     approx $875M
 
Operating income - as reported 20,462 25,000-30,000 114,200-119,800

% of net sales

9.7 %

11.4% - 14.3

%

approx 13.5%
Adjustments - restructuring     792           approx 800
Operating income - as adjusted 21,254 25,000-30,000 115,000-120,000
% of net sales 10.1 %

11.4% - 14.3

%

approx 13.5%
 

 

 
Pentair, Inc. and Subsidiaries

Reconciliation of the GAAP "As Reported" year ending December 31, 2008 to the "Adjusted" non-GAAP excluding the effect of 2008 adjustments (Unaudited)

 

 

 

 

In thousands  

First Quarter
2008

 

Second Quarter
2008

 

Year
2008

Water
Net sales   $ 544,686     $ 594,118     $ 2,206,142  
 
Operating income - as reported 65,035 59,475 206,357
% of net sales 11.9 % 10.0 % 9.4 %
Adjustments
Restructuring and asset impairment 2,157 35,223
Horizon settlement           20,435       20,435  
Operating income - as adjusted 65,035 82,067 262,015
% of net sales 11.9 % 13.8 % 11.9 %
 
 
Technical Products
Net sales   $ 285,460     $ 304,260     $ 1,145,834  
 
Operating income - as reported 45,337 49,732 169,315
% of net sales 15.9 % 16.3 % 14.8 %
Adjustments - restructuring and asset impairment           429       8,271  
Operating income - as adjusted 45,337 50,161 177,586
% of net sales 15.9 % 16.4 % 15.5 %

Source: Pentair, Inc.

Pentair, Inc.
Todd Gleason, 763-656-5570
Vice President, Strategic Planning & Investor Relations
todd.gleason@pentair.com

Categories: Press Releases